‘The pie for the component demand is growing,’ says Murata Manufacturing President Tsuneo Murata, shown in 2012 with a bicycle-riding robot. Reuters
KYOTO, Japan—China’s smartphone boom is being fueled by an unlikely source: Japanese parts makers.
Upstart Chinese phone makers like Xiaomi Inc., Lenovo Group Ltd. and Huawei Technologies Co. are increasingly undercutting smartphone giants like Apple Inc. and Samsung Electronics Co. with high-performance, low-cost handsets.
A significant portion of those handsets’ guts—as much as 50% by value, in some cases—is made by Japanese companies like Murata Manufacturing Co. or TDK Corp. Those parts range from displays and Wi-Fi modules to tiny, energy-storing ceramic capacitors.
“Almost all cellphone manufacturers are our customers,” said Tsuneo Murata, president of Murata, which makes capacitors and other components. “The pie for the component demand is growing.”
The parts sales are a rare bright spot in Japan’s gloomy electronics industry, and China’s smartphone market—the world’s largest and growing at 19% a year, according to Counterpoint Research—is a big factor. Sales there are being fueled by cutthroat competition among dozens of brands, some of which offer smartphones at less than $100. Lower prices mean smaller budgets for parts, but Japanese suppliers often provide a larger share of components to Chinese brands than to Apple or Samsung, analysts say.
In the second quarter of this year, Xiaomi leapfrogged Apple and Samsung to become the best-selling smartphone provider in China, according to Canalys, a research firm. Counterpoint says Chinese brands will capture about three-quarters of the domestic market this year, in terms of volume, up from one-third in 2010.
Chinese companies are boosting purchases of Japanese parts as they push beyond the domestic market, in order to upgrade their phones. In some Chinese-branded phones, Japanese suppliers provide up to half of the parts by value, said Daiki Takayama, an analyst at Goldman Sachs.
Another Chinese smartphone maker, ZTE Corp. , buys displays from Sharp Corp. of Japan for its high-end phones, along with camera modules from Sony Corp. , said Lu Qianhao, head of the company’s handset marketing strategy. He cited technological know-how, manufacturing expertise and quality control as advantages of Japanese suppliers.
By contrast, Japanese suppliers account for about one-third of the bill of materials for the latest iPhones, and less than that for Samsung phones, said Shoji Sato, an analyst at Morgan Stanley MUFG Securities.
Even phone-screen maker Japan Display Inc., whose shares plunged last week after it predicted a loss this fiscal year because of delays in shipments to Apple, says that it expects sales to Chinese smartphone makers to nearly triple to ¥180 billion ($1.68 billion) during the same period.
Japan Display makes liquid-crystal displays for smartphones and tablet computers, one of the most competitive areas in the parts business, in which rivals like LG Display Co. of South Korea have been making inroads. Suppliers like Murata that dominate hard-to-copy niches are doing better.
Murata, which is based in Kyoto, built on a long tradition of ceramics-making in Japan’s former capital to hone its specialization in capacitors and related components.
The company’s latest capacitors are not much bigger than a grain of sand, but they contain about 100 layers of ceramics, and Murata uses proprietary machines and methods to make them.
“It’s like making a good mille-feuille,’’ Mr. Takayama said. “You can buy a very high-quality egg, the best vanilla essence or whatever, but nobody else knows how to mix it or how long to bake it.”
Because Murata is the world’s largest supplier of capacitors for phones, with a 35% share, it can assure manufacturers of a reliable supply, analysts say. That is important given the tight schedules of the smartphone business.
Capacitors cost pennies or less, but state-of-the-art handsets contain 700 to 800 of them—three or four times as many as in previous generations of smartphones, the company says.
Mr. Sato estimated that Murata sells $2 to $3 worth of parts to most Chinese smartphone makers per handset. Given that Xiaomi alone has forecast shipments of 60 million phones in 2014 and 100 million next year, that is a solid source of revenue. Apple, which uses more capacitors, as well as other parts that Chinese makers don’t generally source from Murata, buys about $9 to $10 worth of Murata parts for every iPhone, Mr. Sato estimated.
Murata’s sales of parts to smartphone makers and other suppliers of communications gear rose about 90% over the past five years, to ¥430 billion in the year ended March 31, boosting overall sales by about 60%, to ¥847 billion.
The Kyoto area, also home to parts makers like Rohm Semiconductor , Nidec Corp. and Kyocera Corp. , has been one of the biggest beneficiaries of the Chinese smartphone boom. TDK, which is based in Tokyo and makes capacitors and other parts, says its sales to Chinese smartphone makers rose 50% in the April-June quarter.
The push to automate smartphone assembly plants in China, including those making phones for non-Chinese brands, is providing a further boost to Japanese suppliers. Fanuc Corp. , a maker of industrial robots that is based in the shadow of Mount Fuji, in September sharply upgraded its forecast for sales and earnings in the financial year ending in March by 29% and 26%, respectively.
Katsushi Saito, an analyst at Nomura Securities, said increased orders for plants owned by Hon Hai Precision Industry Co. , which operates under the trade name Foxconn Technology Group and is a major assembler of Apple and Xiaomi phones, was the likely reason.
A spokesman for Fanuc said he couldn’t disclose the names of the company’s clients. Apple didn’t respond to a request for comment. Xiaomi and Foxconn declined to comment.
Much of the growth in demand for parts this year was linked to China’s rollout of high-speed networks and the handsets that operate on them.
Japanese parts suppliers have also benefited from the recent weakness of the Japanese yen, which reduces a price gap with competitors in South Korea and China.
Like other parts suppliers, Murata is looking beyond the boom in Chinese smartphones to new markets like wearable technology, as well as existing industries with a growing appetite for precision electronics parts, such as the automotive and health-care businesses, Mr. Murata said.
—Juro Osawa in Hong Kong and Chieko Tsuneoka in Tokyo contributed to this article.
http://online.wsj.com/articles/chinese-smartphones-lift-japans-electronics-business-1413827482
Comment: This is the reason why Japan and Chinese integration in markets is a necessity. I pray more and more symbiotic opportunities can be availed of.
Im not insulting your region bro, just stating what i have observed myself. If south Asia doesn't get its acts together/open up to trade and investments from any country(rival neighbouring countries included, where there is a huge opportunity/gap for trade) then i'm afraid in a decade or two from now, you people will be even more worse off when compared to east asia.
